We have seen the crypto industry and staking services go down in recent months. The time has now come for decentralized finance to feel the burn of the community. This came to light after Iron Bank announced holding back the users’ funds of Alpha Homora. Funds are being held hostages to cover a debt agreement brokered between the two parties 2-years ago following a hack.
Other projects could be scrutinized, or they may want to revisit their respective deals. For now, funds have been held by Iron Bank after Alpha Homora allegedly failed to repay $30 million in debt.
Set up in January 2021, Iron Bank was merged into the decentralized monopoly of interconnected projects. However, the issue arose when Alpha Finance suffered a hack or was rather exploited through the new pool contract on February 13, 2021. This was never announced publicly, but the hack caused a loss of $32.4 million to Iron Bank.
Meaning the code of Alpha was hacked, and Iron Bank suffered the loss. A repayment agreement was brokered to ensure that the bad debt was covered in the best possible manner. According to the terms, Alpha became liable to allocate 20% of the fees of protocol to Iron Bank by placing its 50 million ALPHA tokens as collateral. These were worth $90 million at that time.
Market trends changed, volatility came into play, and ALPHA tokens began losing their value as it had to happen. This went to the extent of the token being written off by 90% in the market. The agreement, therefore, was left uncollateralized.
Per a statement issued by Iron Bank, Alpha could only pay back 1.5% of the total debt, still owing them $31.9 million.
ALPHA was never liquidated during the free fall. Instead, both agreed to top up the collateral and rebalance the debt. Speculation states that there is a chance that the agreement was drafted and agreed upon in good faith during the bullish period. There could also be a fear of loss, as another speculation.
Nonetheless, a loss has been registered by Iron Bank that has forced the platform to hold users’ funds’ hostage. Termed drastic measure, it is said that Alpha was given an ultimatum in the previous week; however, funds were frozen at that time as well. Alpha has come forward with a proposal for Iron Bank, seeking to let go approximately $11 million and still retain the remaining $30 million until they reach a center point. With the deadline long gone, both parties are yet to issue a statement, and it is now believed that Iron Bank could pull out the big gun to hold the users’ funds hostage.
Reportedly, Iron Bank has held funds without the approval of DAO. Questions are also being asked if it justifies holding users’ funds over a deal entered into two years ago.